IDEAS home Printed from https://ideas.repec.org/a/ebl/ecbull/eb-09-00810.html
   My bibliography  Save this article

On the Impacts of Crisis on the Risk Premium: Evidence from the US Stock Market using a Conditional CAPM

Author

Listed:
  • Arouri Mohamed El Hédi

    (EDHEC Business School)

  • Jawadi Fredj

    (Amiens School of Management, LEO Université d''Orléans)

Abstract

This article investigates the evolution of the US risk premium in periods of crisis. First, we estimate a conditional CAPM with time-varying systematic risk and price of risk using a multivariate GARCH-in-Mean model. Second, we study the structural breaks in the risk premium we obtain. Finally, we relate our results to important facts and economic events. Our findings show that the US risk premium increased significantly during periods of crisis and that the last 2007-2009 financial crisis has had the largest impact.

Suggested Citation

  • Arouri Mohamed El Hédi & Jawadi Fredj, 2010. "On the Impacts of Crisis on the Risk Premium: Evidence from the US Stock Market using a Conditional CAPM," Economics Bulletin, AccessEcon, vol. 30(2), pages 1032-1043.
    • Handle: RePEc:ebl:ecbull:eb-09-00810
    as

    Download full text from publisher

    File URL: http://www.accessecon.com/Pubs/EB/2010/Volume30/EB-10-V30-I2-P97.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Atif Mian & Amir Sufi, 2008. "The Consequences of Mortgage Credit Expansion: Evidence from the 2007 Mortgage Default Crisis," NBER Working Papers 13936, National Bureau of Economic Research, Inc.
    2. Carrieri, Francesca & Errunza, Vihang & Hogan, Ked, 2007. "Characterizing World Market Integration through Time," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(4), pages 915-940, December.
    3. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
    4. De Santis, Giorgio & Gerard, Bruno, 1997. "International Asset Pricing and Portfolio Diversification with Time-Varying Risk," Journal of Finance, American Finance Association, vol. 52(5), pages 1881-1912, December.
    5. Arouri Mohamed el hédi & Fouquau Julien, 2009. "On the short-term influence of oil price changes on stock markets in gcc countries: linear and nonlinear analyses," Economics Bulletin, AccessEcon, vol. 29(2), pages 795-804.
    6. Arouri Mohamed el hédi & Jamel Jouini, 2009. "Analysis of structural breaks in the stock market integration of mexico into world," Economics Bulletin, AccessEcon, vol. 29(2), pages 1380-1392.
    7. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Is the 2007 US Sub-Prime Financial Crisis So Different?: An International Historical Comparison," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(3), pages 291-299.
    8. Gerard, Bruno & Thanyalakpark, Kessara & Batten, Jonathan A., 2003. "Are the East Asian markets integrated? Evidence from the ICAPM," Journal of Economics and Business, Elsevier, vol. 55(5-6), pages 585-607.
    9. Mohamed El Hedi Arouri & Jamel Jouini, 2009. "Structural Breaks in the Mexico's Integration into the World Stock Market," Papers 0905.3873, arXiv.org.
    10. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
    11. De Santis, Giorgio & Gerard, Bruno & Hillion, Pierre, 2003. "The relevance of currency risk in the EMU," Journal of Economics and Business, Elsevier, vol. 55(5-6), pages 427-462.
    12. Harvey, Campbell R, 1991. "The World Price of Covariance Risk," Journal of Finance, American Finance Association, vol. 46(1), pages 111-157, March.
    13. Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "Is the 2007 US Sub-prime Financial Crisis So Different? An International Historical Comparison," American Economic Review, American Economic Association, vol. 98(2), pages 339-344, May.
    14. Fredj Jawadi, 2010. "Financial crises, bank losses, risk management and audit: what happened?," Applied Economics Letters, Taylor & Francis Journals, vol. 17(10), pages 1019-1022.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Vit Posta, 2012. "Time-Varying Risk Premium in the Czech Capital Market: Did the Market Experience a Structural Shock in 2008–2009?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 62(5), pages 450-470, November.
    2. Dimitrios Dimitriou & Theodore Simos, 2013. "International portfolio diversification: an ICAPM approach with currency risk," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 6(2), pages 177-189, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Arouri Mohamed el hédi & Jamel Jouini, 2009. "Analysis of structural breaks in the stock market integration of mexico into world," Economics Bulletin, AccessEcon, vol. 29(2), pages 1380-1392.
    2. Guesmi, Khaled & Nguyen, Duc Khuong, 2011. "How strong is the global integration of emerging market regions? An empirical assessment," Economic Modelling, Elsevier, vol. 28(6), pages 2517-2527.
    3. Boubakri, Salem & Guillaumin, Cyriac, 2011. "Financial integration and currency risk premium in CEECs: Evidence from the ICAPM," Emerging Markets Review, Elsevier, vol. 12(4), pages 460-484.
    4. Arouri, Mohamed El Hedi & Nguyen, Duc Khuong & Pukthuanthong, Kuntara, 2012. "An international CAPM for partially integrated markets: Theory and empirical evidence," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2473-2493.
    5. Mohamed El Hedi Arouri & Jamel Jouini, 2009. "Structural Breaks in the Mexico's Integration into the World Stock Market," Working Papers hal-00387114, HAL.
    6. Arouri, Mohamed & Teulon, Frédéric & Rault, Christophe, 2013. "Equity risk premium and regional integration," International Review of Financial Analysis, Elsevier, vol. 28(C), pages 79-85.
    7. Kinnunen, Jyri, 2013. "Dynamic return predictability in the Russian stock market," Emerging Markets Review, Elsevier, vol. 15(C), pages 107-121.
    8. Boubakri, Salem & Guillaumin, Cyriac, 2015. "Regional integration of the East Asian stock markets: An empirical assessment," Journal of International Money and Finance, Elsevier, vol. 57(C), pages 136-160.
    9. Harry J. Turtle & Chengping Zhang, 2015. "Structural breaks and portfolio performance in global equity markets," Quantitative Finance, Taylor & Francis Journals, vol. 15(6), pages 909-922, June.
    10. repec:wyi:journl:002183 is not listed on IDEAS
    11. Khaled Guesmi & Mohamed Hedi Arouri & Ilyes Abid & Frédéric Teulon, 2013. "On the Determinants of Equity International Risk Premium: Are Emerging Zones Different?," Economics Bulletin, AccessEcon, vol. 33(1), pages 597-611.
    12. Arouri, Mohamed El Hedi & Foulquier, Philippe, 2012. "Financial market integration: Theory and empirical results," Economic Modelling, Elsevier, vol. 29(2), pages 382-394.
    13. Salma Fattoum & Khaled Guesmi & Bruno-Laurent Moschetto, 2014. "The Evolution of Risk Premiums in Emerging Stock Markets: The Case of Latin America and Asia Region," Working Papers 2014-132, Department of Research, Ipag Business School.
    14. Guesmi, Khaled & Kablan, Sandrine, 2015. "Financial integration and Japanese stock market," MPRA Paper 70206, University Library of Munich, Germany.
    15. Karen K. Lewis, 2011. "Global Asset Pricing," Annual Review of Financial Economics, Annual Reviews, vol. 3(1), pages 435-466, December.
    16. Guesmi, Khaled & Teulon, Frederic & Muzaffar, Ahmed Taneem, 2014. "The evolution of risk premium as a measure for intra-regional equity market integration," International Review of Financial Analysis, Elsevier, vol. 35(C), pages 13-19.
    17. Ivan Petzev & Andreas Schrimpf & Alexander F. Wagner, 2015. "Has the Pricing of Stocks Become More Global?," Swiss Finance Institute Research Paper Series 15-48, Swiss Finance Institute, revised Apr 2016.
    18. Alotaibi, Abdullah R. & Mishra, Anil V., 2017. "Time varying international financial integration for GCC stock markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 63(C), pages 66-78.
    19. Khaled Khaled & Amel Belanes & Sandrine Kablan, 2018. "The regional pricing of risk: An empirical investigation of the MENA Region," Economics Bulletin, AccessEcon, vol. 38(2), pages 751-760.
    20. Hui Tong & Shang-Jin Wei, 2008. "Real Effects of the Subprime Mortgage Crisis: Is it a Demand or a Finance Shock?," NBER Working Papers 14205, National Bureau of Economic Research, Inc.
    21. Mohamed El Hedi Arouri, 2005. "Intégration financière et diversification internationale des portefeuilles," Économie et Prévision, Programme National Persée, vol. 168(2), pages 115-132.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • F3 - International Economics - - International Finance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ebl:ecbull:eb-09-00810. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: John P. Conley (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.